In a David-and-Goliath battle, a group of Rhode Island officials and a union for hospital workers have so far stymied a multi-billion-dollar private equity funds attempt to unload its controlling stake in a national for-profit hospital chain. He relented only after a bit of salesmanship: Topper surprised him by turning up at a dinner meeting with 15 doctors who promised to send patients to Altas hospitals. (Near the end of the reporting for this article, Prospects CEO, Lee, spoke to ProPublica on the condition that he not be quoted.) Hed go through three hours of literally just peeling the skin off somebody, Aleman said. As Mississippis oyster population continues its freefall, state leaders turn to a model that has helped in Louisiana. In response, Rhode Island terminated the accounting firms contract to avoid any perception of impropriety, motivation, and influence. The state informed Prospect that the termination would delay the review process as Rhode Island needed to hire a new accounting firm. We do not generally permit translation of our stories into another language. You are are free to republish it so long as you do the following: Copy and paste the following into your page to republish: New Law Aims to Save Oysters on the Mississippi Coast, In Secret Recording, a Top City Library Official Calls Alaska Natives Woke and Racists. When GOP Attorneys General Embraced Jan. 6, Corporate Funders Fled. By 2010, the investing trends had changed. In the face of more than a year of often-vehement public opposition in Rhode Island, the hospital chain suddenly agreed in the final days of December to pay $27.25 million to resolve a group of lawsuits they had previously refused to settle. Lees experience was in finance, not medicine. Prospect Medical Agrees To Pay $1.9M To Settle OT Fight Lee disputed some of Whites claims, but acknowledged in the companys written responses that this was a difficult time, resulting in some bounced checks and some payables being missed. He insisted that ultimately, all the vendors were paid., Shedding those money-hemorrhaging operations helped Alta turn a financial corner. (The E&Y senior manager assigned to examine Altas financials told ProPublica the misstatement was very easy to find.) Six members of the environmental services staff, responsible for cleaning patient floors, also got sick. From the beginning, Lee and Topper brought the cost-slashing philosophy of private equity firms to Alta and its hospitals, according to interviews with former executives and multiple lawsuits. (Terner, who has since died, sued and won the full $1 million he was due, plus legal fees, in court. Lee became the primary decision-maker. The Justice Didnt Disclose the Deal. After you rattle their chains, they pay part of the bill, get their credit hold lifted, and you can get fuel. (Prospect said the card was rejected because it placed a charge limit on it as a security measure, and when it was brought to our attention that the account was reaching the credit limit frequently, we increased the credit limit to ensure there was not disruption of services.), The systems eight ambulances are so old two have more than 275,000 miles on them that they frequently break down, according to Worrilow. (To inquire about syndication or licensing opportunities, contact. It sought, unsuccessfully, to reduce nurses accrued vacation time and to cut pension benefits for all employees who didnt work full time. Nix included a 208-bed downtown hospital, an inpatient psychiatric center and multiple outpatient clinics. Only two years in, the private equity fund had made back most of its $205 million investment. A proposed wage and hour class action lawsuit has been filed on behalf of DE County Memorial ), Michael Terner worked as an executive vice president at Prospect for five years and departed around the same time as his father. Chris Callaci, general counsel for the Fatima hospital union, said his group is also considering running a radio ad to boost public opposition to the sale. You cant republish our material wholesale, or automatically; you need to select stories to be republished individually. The next day youre absolutely in the doghouse., (Last fall, Lee abruptly terminated Aleman, who then filed suit claiming he is owed for unpaid compensation and canceled company stock options. A 2018 state inspection found the pharmacy staff at the Culver City hospital had for months ignored findings of fungal air growth, bacterial organisms and mold in equipment used to mix patient medications in a sterile environment. When Prospect then missed the escrow deadline, the foundation began garnishing the companys accounts and sought to have a receiver appointed over all its financial transactions. The companys 92-page confidential information memorandum, prepared for prospective acquirers and obtained by ProPublica, promoted the companys cost-effective care model, including daily flex management of hospital staffing, use of low-cost sources for medical supplies and a focus on high-profit programs for treating the seriously mentally ill. Bain Capital and CVC Capital Partners were the two final bidders. Prospect Medical Group, an Independent Physician Assocation (Another $14 million in fees went to the private equity fund. We were probably about three weeks behind every other hospital in getting just the basics, said Fatima RN Lynn Blais. Theres so many other places to put their money in health care that they can flip faster, Phillips said. Learn More / Map Long called Brotman Medical Center, it is best known for its burn center, which treated Michael Jackson in 1984 after his hair and jacket caught fire during the filming of a Pepsi commercial. MEDICAL PROPERTIES TRUST, INC. (NYSE: MPW) In late 2015, Prospect outbid two other companies with a $44 million offer for the 196-bed hospital, then in bankruptcy and losing more than $2 million a month. Prospect asserted, by contrast, that all leaks are identified and fixed as they occur. The company said roof replacement has begun on the main patient building. Creative Commons License (CC BY-NC-ND 3.0). The matter remains pending. According to the report, this resulted in the dispensing of about 21,000 doses of adulterated dangerous drugs to patients over a nine-month period. A similar penury afflicts medical supplies. The $12 million is to be paid by the company, not the two executives. Sign up to receive our biggest stories as soon as theyre published. Lee churned through executives and could turn brutal, screaming at subordinates or grilling them over a tiny issue. Prospect removed Nixs longtime CEO in 2015 and established control from headquarters in LA, while cycling through four more CEOs in the next four years. Los Angeles-based Prospect Medical Holdings is making a last-minute attempt to block Prime Healthcare Services from buying a 384-bed bankrupt Prospect promised to spend hundreds of millions more on pension and capital improvements. The plan was declared insolvent and placed in receivership in 2017. Theyve squeezed it as dry as they can., Those actions have made it hard for the firms to sell hospitals, according to Eileen Appelbaum, senior economist at the Center for Economic and Policy Research, who studies private equity. Some of Altas hospitals, according to company filings with the California health department, were averaging 30% occupancy. All of a sudden COVID comes in, everybody should have surgical masks, and we dont have two days worth of surgical masks, much less two months of surgical masks. ), For Leonard Green, the exit made a certain sense. Aleman called the charges an offensive smear campaign that Prospect is attempting against myself and others who are no more than victims of Lees broader plan to enrich a few and hurt many.). It began preparing to issue a $600 million dividend. In September 2019, Californias attorney general formally charged Prospect executives, including Lee, the hospital and its supervising pharmacists, with gross negligence, initiating proceedings to revoke or suspend the hospitals pharmacy permit. Prospect Medical Eventually, word of Prospects practices spread, causing alarm when the company sought to acquire new hospitals in other states. Employees told ProPublica the problem has persisted for years and provided photographs and videos documenting numerous leaks as well as the mold growth. Nelson said the three parties set aside a combined $22 million to cover the reimbursements while CMS completed its still-unfinished audit of how much is due. Responding to questions through an outside spokesman, they said they have no intention of abandoning their plans for the companys sale. Find a Physician in Southern CA | Prospect Medical Lee became super-involved in overseeing Alta even as Kline Hawkes quickly found an exit, according to Kline. Lee convinced a Moss Adams senior partner to overrule him something that had never happened, Bogert said, during more than 300 previous hospital audits. Now Theyre Back. One day youre like a superstar and the future of the company, said Steve Aleman, who became Prospects CFO in 2013. Given Sam Lees prowess at squeezing cash out of ailing institutions, Prospect undoubtedly will find profits left to extract. Prospect Medical Holdings tries to block sale of 384-bed bankrupt The company denies the allegations, including that any of its hospitals suffer from staffing shortages. Critical medical equipment and supplies, including drugs and tracheotomy kits, were routinely unavailable at Altas hospitals because bills hadnt been paid, according to a breach of contract suit later filed by a former Alta chief operating officer named Michael White. WebWelcome to Prospect Medical Holdings Locations We are hospitals and affiliated medical groups working for the benefit of every person who comes to us for care. A Hospital Chain Said ProPublica Article Was Inaccurate. Its Not. How Cigna Saves Millions by Having Its Doctors Reject Claims Without Reading Them, If youre republishing online, you must link to the URL of this story on propublica.org, include all of the links from our story, including our newsletter sign up language and link, and use our. But that tension is particularly acute in the case of Leonard Green and Prospect, where private equity has extracted hefty profits from a business that acquires struggling hospitals and relies on Medicaid and other government programs to pay the bills for its impoverished patients. MEDICAL Roger Williams Medical, Fatima Hospital amid The industry was complicated and highly regulated, both anathema to private equity. Prospect is now poised to shutter another acquisition it eagerly pursued: East Orange General, outside Newark, New Jersey. The litany goes on. The merger nearly wrecked Prospect. Their model was really about just bare minimum, said Mike Heather, who later helped Prospect acquire Alta and served as Prospects CFO from 2004 through 2013. Prospect vowed to spend $52 million on capital improvements and keep the hospital open for no less than five years. Three years into that vow, with losses still running about $1 million a month, Prospects warnings that it wanted to sell or close the hospital spurred state lawmakers to hand the company an emergency $15 million grant. But a Jan. 29 deadline for the state to approve the deal has been extended indefinitely and other obstacles remain. Therein, MPT disclosed an impairment of about $171 million on four properties leased to Prospect as well as a write off of about $112 million in unbilled rent for the same client. At the companys flagship Los Angeles hospital, persistent elevator breakdowns sometimes require emergency room nurses to wheel patients on gurneys across a public street as a security guard attempts to halt traffic. Always eager to delay and reduce a big outlay, Prospect deferred $21.5 million of the foundation funding for 90 days and then refused to make the payment altogether, challenging how much it owed. DeMauro alleges that unlawful retaliatory conduct she faced after complaints about these practices forced her to resign. The $12 million was to be paid by Prospect, not the two executives. Private equity really wants to see growth fast and get out, Phillips said. In a letter responding to the company, Alemans lawyer denied that his client made any defamatory statements. "Prospect Medical Holdings has notified the Department of Attorney General and the Department of Health this morning The receiver demanded that Prospect help make the fund whole. The ultimate total cost to Prospect from the improper billing episode, including expected income the company lost as a result, was in the tens of millions, Aleman estimated. Prospects own consultant, Alvarez & Marsal, largely confirmed Inter Valleys findings in September 2016 in a confidential draft document reviewed by ProPublica. In October, the private equity firm agreed to sell the firms 60% stake to Lee and Topper for $12 million in cash plus the assumption of $1.3 billion in lease obligations. But not so in Rhode Island, where Prospect owns its other two hospitals. Creditors would not come in to fix things because the hospital owed them money, she said. With all that Prospect has done for Rhode Island, and will continue to do, we hope the state will recognize the benefits and approve this request. The company issued a press release noting that an outside monitor for the state had found that Prospect had met the commitments it had made for capital spending at the two hospitals. After learning this, Prospect negotiated contract language freeing it from any future pension liability. Medical And then, all of a sudden, boom you cant get fuel, said Worrilow, who has worked there since 1977. ), The situation grew dire. Ive seen the whole M&A market for hospitals dry up., Making quick profits from operating hospitals proved daunting. But Neronhas approval, announced Tuesday, came at a cost to the company. Lees first out-of-state acquisition would erase that claim. After an unnecessary hospital admission requalified them for Medicare benefits, the patients were then returned to their facilities, according to the suit, boosting government billings for both Prospect and the senior facilities. Those shares were enough to give Lee and Topper control of Prospect. It was too late. Kline picked a British-sounding name to add a dash of gravitas. Prospect said it quickly resolved all immediate jeopardy findings, something a hospital is required to do to remain eligible for federal reimbursements. Prospect in turn is controlled by the You have to send the next closest ambulance. WebThe filed complaint alleges that defendants made false statements and/or concealed that: (1) Prospect Medical Holdings, Inc. (Prospect), which leases and operates 13 of the We have official accounts for ProPublica on. Three lawsuits assert that Prospect committed Medicare fraud at one of its facilities. Lee had worked for Andersen Consulting (as a grunt, he later explained in a deposition) and a Florida software company before getting an MBA at Harvard and joining Kline Hawkes. Leonard Green, a firm known for its investments in marquee consumer brands like Whole Food Markets and Neiman Marcus, joined the rush. (Under agreements Prospect makes virtually all employees sign, the case is scheduled to go to arbitration. In the latest skirmish between Prospect Medical Holdings and Rhode Island Attorney General Peter Neronha, Prospect announced Friday it is withdrawing from the state process for changing its ownership. Patients needing MRI scans must be taken outdoors and down an alley, past dumpsters and into a hospital parking lot, where the scan is done in a rented trailer. Callaci told ProPublica that attorneys representing Prospect approached him to explore what it would take to get the union to drop its opposition, but that the discussions went nowhere. In February, Aleman, whod been stripped of his stock options when he was suddenly fired last fall, filed suit in California, seeking restoration of his shares and payment of his 2018 bonus. Employee pensions was the other issue. Prospect settled in 2017, agreeing to pay $275,000 while asserting that the claims were wholly without merit.. During negotiations over the sale, Prospect was repeatedly briefed on actuarial studies showing that even after a $14 million contribution that Prospect agreed to make, the plan would run out of money by 2036, while still owing about $98 million in retirement benefits. In November 2018 came yet another immediate jeopardy finding. Leonard Green was now ready to fully cash in and exit its investment. As late as Dec. 10, the receivers special counsel told a public hearing that Lee and his partner were predators, using the hospitals as their private piggy banks. A financial consultant for the receiver also warned in a report that Prospects financial statements through fiscal year 2019 (even preceding the financial stress caused by the COVID-19 pandemic) revealed a worsening state of insolvency and imminent bankruptcy, absent a big capital infusion. Prospect, Inter Valley and a hospital used by the plans patients had to repay the federal government for the improper income theyd received. Dozens of lenders, executives, doctors, staffing agencies and hospital vendors filed lawsuits and court claims over unpaid debts and broken agreements. This includes publishing or syndicating our work on platforms or apps such as Apple News, Google News, etc. That is beyond the pale.. This includes publishing or syndicating our work on platforms or apps such as Apple News, Google News, etc. WebProspect Medical Holdings, Inc. | 14,513 followers on LinkedIn. The pattern would continue at Prospect. That same year, state health inspectors cited the hospital after a broken refrigeration system in its morgue caused a womans corpse to decompose so badly it produced a noticeable stench, making it impossible for her family to have an open-casket funeral. LAWSUIT MEDICAL That quality component was always lax in my opinion, one said. (The firms have lately turned their sights to outpatient clinics or staffing emergency rooms.) Prospect Medical Holdings, Inc. ("Prospect") leases and operates 13 of MPT's facilities. WebWe are hospitals and affiliated medical groups working for the benefit of every person who comes to us for care. Billionaire Harlan Crow Bought Property From Clarence Thomas. Hospital shutdown in Pennsylvania spurs questions about private Everyone on Inter Valleys board, he added, accepted that its organization had been reimbursed for false charges. Prospect today is at no risk of financial failure.. Prospect Medical Holdings, Inc. ("Prospect") leases and operates 13 of MPT's facilities. Lee was eager to expand, too, confident that his business model could be applied to many more struggling hospitals, multiplying the companys revenues from about $470 million in 2010 to several billion. Conflict between Prospect and Neronha flared on Thursday when the hospital chain threatened to close the hospitals, and take legal action, if the state Three lawsuits assert that Prospect committed Medicare fraud at one of its facilities. At least part of the delay in approving the sale in Rhode Island appears to be self-inflicted by Prospect. It also said it would have been economically impossible for Prospect to take over liability for the retirement system and called the receivers allegations about the companys actions false and unsubstantiated. Both Prospect and the diocese deny concealing the pension systems condition. Prospect asserts that it promptly addressed the consultants concerns about dirty and damaged surgical instruments, but that it viewed the report as proprietary and thus availed itself of the court system. The company added: As we recently received a ruling from the Federal Court to produce the document, we have complied with the order., Prospect has yet to hand over any documents, according to the union. by Ian Donnis. It had effectively replaced its debt payments with rent payments. The transaction breezed past regulators in four states where Prospect owns a total of 15 hospitals. Prospect has conducted a public relations counter-offensive. The retirement system, and its massive funding deficit, would become the responsibility of a nonprofit community board, which had no reliable source of income. By January 2019, Prospect had so little cash that it needed an emergency $41 million loan from Leonard Green, Lee and Topper to assuage auditor fears that the company might not remain a going concern and to avoid violating loan covenants, according to Aleman. Prospect Theres plenty of times when we went to go on an emergency call and the ambulance wouldnt start, he said. Correction, Oct. 12, 2020: An earlier version of this article misspelled the name of Doreena Duphily. ), At Crozer-Keystone, as elsewhere, Prospect has aggressively moved to lower costs. All but one of Prospects hospitals rank below average in the federal governments annual quality-of-care assessments, with just one or two stars out of five, placing them in the bottom 17% of all U.S. hospitals. He would just not pay people as a way to negotiate. The lawsuit on behalf of Medical Properties Trust investors has been commenced in the United States District Court for the Southern District of New York. Based on our communications with RI regulators, they stated, we expect to complete the transaction in the coming months.. Then 49, Topper started Alta after recovering from a fire at his home that left him on a respirator, with third-degree burns over 70% of his body. The court-appointed receiver has filed multiple lawsuits accusing Prospect and the diocese of omissions and half-truths actionable as fraud, demanding that they help make the pension whole. Prospect Medical Holdings The issue, described in internal documents obtained by ProPublica and interviews, involved unsupported reimbursement codes submitted by Prospects physician-management business, whose dramatically increased profits the company had promoted to potential buyers. Prospect Medical Holdings, a for-profit company based in California, has had a majority stake in the two hospitals since 2014. On May 1, department supervisor Jerald Ferreira, 63, died of COVID-19. (For example, yesterday can be changed to last week, and Portland, Ore. to Portland or here.), You cannot republish our photographs or illustrations without specific permission. You cant sell our material separately or syndicate it. Both made offers around $1.2 billion, according to sources familiar with the talks. Roughly $386 million had gone to Leonard Greens investors and the firm (which gets 20% of all fund profits); $128 million to Lee; $94 million to Topper; and the remaining $37 million was divided among other Prospect executives. CBS News submitted detailed questions to Prospect Medical about these financial decisions, including about the $457 million dividend and the lease-back Its such a brutal case of unabashed greed, said Rosemary Batt, a professor at Cornell Universitys School of Industrial and Labor Relations, who has studied private equitys involvement in health care. That success didnt last long. Citing Leonard Greens history with the hospital company, the Rhode Island state treasurer has said he will block any future investments by his state, which sunk $20 million into the fund that owns Prospect, in the private equity firms funds. Altas facilities were sort of war-zone hospitals. (The statement from Green and Lee denies they tried to sell the company in 2018. You cant state or imply that donations to your organization support ProPublicas work. Leonard Greens sale to Lee and Topper requires approval from state officials in Rhode Island, since it involves hospitals there. We Leonard Green extracted $400 million in dividends and fees for itself and investors in its fund not from profits, but by loading up the company with debt.

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